Governance

Malaysia’s affirmative action should be based on need

Malaysia’s Affirmative Action Should Be Based on Need

When Malaysians came out in numbers to replace the government that had ruled since Independence, they signaled a clear desire for change. But what kind of mandate does the new government have? Pakatan Harapan’s election campaign included a host of promises, most of which are now being pursued without much controversy.

But the elephant in the room that the new administration has yet to directly address is Malaysia’s affirmative action program and its host of race-based policies that favor Malay and other indigenous groups (Bumiputras). Some of the parties in the coalition call for reform or reversal of the affirmative action program.

First, some background. The affirmative action program began as the New Economic Policy (NEP) in 1970, after the bloody race riots following the May 1969 elections, when the ruling coalition came close to losing its two-thirds majority. The NEP’s two main objectives were to eradicate poverty regardless of race and to eliminate the identification of race with economic function. This made sense at the time because 49% of the population in Peninsular Malaysia lived in poverty and the vast majority were rural Malay farmers (Athukorala and Menon 1999). Means testing would have been a useful addition to the policy program even then but may have proved largely redundant given socioeconomic conditions.

The NEP ran for 20 years, and by 1990 poverty had tumbled to just 17%. Bumiputra corporate share ownership also rose sharply from 1.5% to 18%, although this was still below the target of 30%. The NEP was reincarnated as the National Development Policy, and although it focused more generally on issues of growth and industrialization, the race-based policies not only remained but actually grew in number and significance. And there was still no means testing, despite the growing numbers of middle-class and affluent Bumiputras.

Even though the affirmative action program has become so extensive and entrenched over the decades, most Bumiputras have not realized much benefit from it. But a very small minority have enjoyed superlative gains.

The program’s problems have been recognized at the highest levels of Malaysia’s government for some time now. When unveiling his New Economic Model in 2012, former prime minister Najib Razak noted that  “it is time to review its implementation” to make the program ”market-friendly, merit-based, transparent and needs-based.” Even Prime Minister Mahathir Mohamad (2011) has recognized its failings in his memoirs: “the protection and privileges accorded by the NEP may weaken the Malays further by lulling the next generation into complacency.” Economic Affairs Minister Azmin Ali has recently proclaimed that “economic policies should not be based on race, (but) on needs instead.” There are also reports that the Council of Eminent Persons have proposed a similar shift from race to need in their recommendations to the government after their 100 days of deliberations.

The affirmative action program has failed its focus group while marginalizing everyone else in the process. Rather than increasing social cohesion, it has contributed to disunity. As a result, Malaysia’s skilled labor and capital has tended to migrate overseas (Menon 2014), compounding the costs of affirmative action, borne by all who remain.

It is clear that the system needs to be fixed. The only question is: how?

First, it should be recognized that change is not limited to a binary choice between the prevailing system and its complete overhaul. Much of the sensitivity surrounding the issue either emanates from this confusion or is implied and exploited by vested interest to instill fear. A broad spectrum of choices lies between these extremes. Instituting a system of pure meritocracy is in many ways an unattainable ideal. Even the so-called beacon of meritocracy, neighboring Singapore, has a rotating race-based president.  Maintaining social harmony in a multiracial community calls for striking a delicate balance between society and meritocracy. The problem in Malaysia is that the balance has moved too far away from meritocracy and requires rebalancing.

Second, change needs to be focused and measured. The drive toward greater meritocracy should be viewed more as a break with a system of patronage and cronyism than as a racial redistribution exercise. Patronage politics cuts across race, especially at the higher end of the wealth distribution. If setting a quota based on race results in those most politically connected rather than the most talented within that community securing the advantages, then the costs of the affirmative action program are maximized while the benefits are minimized.

Removing the distortions induced by patronage politics and increasing transparency would be a useful first step toward a more meritocratic system. Measures should also be better targeted to ensure that only those in need receive benefits (Menon 2009). Policy and regulatory capture as part of affirmative action has produced many examples of misplaced subvention, but a favorite such example is that discounts to Bumiputras for housing acquisitions have led to government-subsidized purchases of luxury real estate.

Once the benefits from these changes can be demonstrated, it will pave the way for a gradual deepening of the reform program. The efficiency gains could then be used in a more targeted way to help the needy and to mitigate the temporary adjustment costs associated with the next stage of reform.

Even if done in a gradual and targeted way, reform may still face resistance. After so long, a sense of entitlement may have set in. In its extreme form, Malay supremacists see preferential treatment as affirmation of their elite status rather than an attempt to level the playing field. Such views have no place in any modern society and should not be tolerated. The nexus between race and religion has also strengthened so much that the lines of demarcation have blurred, raising its sensitivity and adding a further complication relating to implementation: religious matters come under the purview of state rather than federal government, and Pakatan Harapan controls only 8 out of the 13 state legislative assemblies.

But if these factors can be overcome, the reformation of the affirmative action program could eventually lead to an outcome that benefits the majority. Paradoxically, it could see Bumiputras constituting the main beneficiaries in the long run. This would take place at the expense of a very small minority of political patrons and cronies of all races.

The most carefully designed affirmative action programs struggle to reach their intended recipients and achieve their goals (Sowell 2004).  It would be difficult to find a more poorly implemented program than the one in Malaysia. Affirmative action in its current form has failed and must change. This is no longer a choice as a dwindling minority cannot indefinitely support a growing majority without leaving a huge burden for future generations. It is time to stop paying lip service to the need for change and to just deliver it. This time, the new government has a real mandate to do so. Their future, and that of the country’s citizenry, will depend on it.

As the National Economic Advisory Council (2011) had once hoped in the New Economic Model: “The time for change is now—Malaysia deserves no less.”
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References:

Athukorala, P. and J. Menon. 1999. Outward Orientation and Economic Performance: The Malaysian Experience. The World Economy 22(8): 1119–40.
Mahathir Mohamad. 2011. A Doctor in the House: The Memoirs of Tun Dr Mahathir Mohamad, Kuala Lumpur: MPH Publishing.
Menon, J. 2009. Macroeconomic Management Amid Ethnic Diversity: Fifty Years of Malaysian Experience. Journal of Asian Economics 20(1): 25–33.
Menon, J. 2014. Malaysia’s Investment Malaise: What Happened and Can It be Fixed?. Journal of the Asia Pacific Economy 19(2): 247–71.
National Economic Advisory Council. 2011. New Economic Model for Malaysia. Putrajaya: National Printing Office.
Sowell, T. 2004. Affirmative Action Around the World. New Haven: Yale University Press.

This is an expanded version of an item that first appeared on the East Asia Forum.

Jayant Menon

About the Author

Jayant Menon is a lead economist in the Economic Research and Regional Cooperation Department at the Asian Development Bank.

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